2.4 Cash flow statement - indirect method
Statement of cash flows definition:
accounting statement that shows earned cash usage in a certain period
info comes from income statement & balance sheet
Statement of cash flows 3 sections:
1. operating activity (net income +- non-cash entries for operations)
2. investment activity (cash used for investment)
3. financing activity (cash flow of firms to investors and vice-versa)
Operating activity
Net income
o + depreciation (this was deducted to compute net income, but there was no
actual cash outflow)
o + non-cash expenses
o + deferred taxes (uitgestelde)
o - accounts receivables (sale is made but cash is not available)
o + accounts payable (borrowed money that can be used)
o - inventory increase (money spend)
o + inventory decrease (money made)
Investment activity
capital expenditures
purchases of new property, plant & equipment (long-term investments)
o deduct when computing cashflows
Financing activity
retained earnings = net income - dividends
payout ratio = dividends / net income
o ratio of a firm’s dividends to its net income.
o % of net income spend on dividends
selling shares > add cash
issue debts (increase borrowings) > add cash
income statement
sales
- cogs
gross profit
- operating expenses
- r&d expenses
- administrative expenses
- depreciation
income from operations
-non operating expenses
net income
, dividends paid = net income - retained earnings
balance sheet trick
Asset goes up - money goes down Liability/equity goes up - cash goes up
Asset goes down - money goes up Liability/equity goes down - cash goes
down
Check by:
total cash flow = cash 2019 - cash 2018
Operating Investing Financing
Inflows Inflows Inflows
sale goods/services sale of PPE sale of ordinary
interest/dividends sale of investment shares
received principal on loans to issue long-debt/ LT
ST liabilities others liabilities
Outflows Outflows Outflows
paying suppliers purchase PPE pay shareholders
(increase inventory) purchase investment (dividends)
paying employees make loans to others redeem long-term
(wages) debts
paying government reacquire ordinary
(taxes) shares
paying lenders
(interest)
expenses
\_________________________________________________________________________/
add all these up and you will see the net income
Statement of cash flows definition:
accounting statement that shows earned cash usage in a certain period
info comes from income statement & balance sheet
Statement of cash flows 3 sections:
1. operating activity (net income +- non-cash entries for operations)
2. investment activity (cash used for investment)
3. financing activity (cash flow of firms to investors and vice-versa)
Operating activity
Net income
o + depreciation (this was deducted to compute net income, but there was no
actual cash outflow)
o + non-cash expenses
o + deferred taxes (uitgestelde)
o - accounts receivables (sale is made but cash is not available)
o + accounts payable (borrowed money that can be used)
o - inventory increase (money spend)
o + inventory decrease (money made)
Investment activity
capital expenditures
purchases of new property, plant & equipment (long-term investments)
o deduct when computing cashflows
Financing activity
retained earnings = net income - dividends
payout ratio = dividends / net income
o ratio of a firm’s dividends to its net income.
o % of net income spend on dividends
selling shares > add cash
issue debts (increase borrowings) > add cash
income statement
sales
- cogs
gross profit
- operating expenses
- r&d expenses
- administrative expenses
- depreciation
income from operations
-non operating expenses
net income
, dividends paid = net income - retained earnings
balance sheet trick
Asset goes up - money goes down Liability/equity goes up - cash goes up
Asset goes down - money goes up Liability/equity goes down - cash goes
down
Check by:
total cash flow = cash 2019 - cash 2018
Operating Investing Financing
Inflows Inflows Inflows
sale goods/services sale of PPE sale of ordinary
interest/dividends sale of investment shares
received principal on loans to issue long-debt/ LT
ST liabilities others liabilities
Outflows Outflows Outflows
paying suppliers purchase PPE pay shareholders
(increase inventory) purchase investment (dividends)
paying employees make loans to others redeem long-term
(wages) debts
paying government reacquire ordinary
(taxes) shares
paying lenders
(interest)
expenses
\_________________________________________________________________________/
add all these up and you will see the net income
